Interview with Michael Carmody

The following is an edited interview transcript. Due to the possibility of mis-hearing, the ABC cannot vouch for its accuracy.

Well you came into the job 10 years ago, at that stage the reform process was well under way, you succeeded Trevor Boucher, what still needed to change?

Well it's been a period of progressive change. Quite apart from huge reform to the law recently but I think at a general level, the sort of issues that we've been dealing with, directions that we've been trying to take is to be a much more open organisation, much more consulted in our approaches, open with the community about what we do, much more open to people coming in, experts and assisting us in a range of forums and I think the other big issue throughout that period has been moving towards much better distinguishing when you're dealing with people because obviously you know some retired person or something who's having difficulty with their tax or just made a mistake, we need to respond differently to those setting out to deliberately avoid the law. Now that's a harder issue to tackle it does require judgment but increasingly and in the reform process, the tax reform process, you've seen us more and more distinguishing our approaches according to what we find.

What attitudes needed to change? There was an attitude in the past that suggested a general suspicion directed towards the taxpayer, did that have to change?

Well I think we need to have a healthy exercise of examining facts I mean we do find people who are trying to rip off the system and we have to be alert to that but what we need to guard against is allowing the fact that we do meet some people like that to influence our overall interactions with the community - that's where we've gone with the taxpayers' charter, our whole compliance approach to compliance is now all about first of all understanding the risk, understanding how people are approaching their taxation affairs and treating them very differently accordingly.

It has seemed to me to be a tough 10 years, what would you say you've achieved in the 10 years?

Well I think I've done my job, but look, if you look at some macro figures we're here to collect the community's revenue, over that period collections have increased from about 74 billion to 185 billion, the costs of collection has reduced by around 20% over that period, collections have exceeded budget forecasts by several billions of dollars, I think I'm particularly pleased when I look at the large corporate revenue take, that's doubled itself in the last five years and if you look at all the indicators like growth in corporate income compared to GDP, growth in tax compared to GDP, effective tax rates, tax paid to sales, profits, assets, they're all on the improvement so I think fundamentally that's been a significant achievement, not just me but by the organisation but I guess the other big issue is what has been a successful implementation of the biggest level of reform to our tax system in our history.

You only have to look through the clippings files to also realise that there has been bad news too, angry taxpayers, unhappy staff, a bad news story like this one, are you coping?

Ah coping with bad news, I'm a realist I understand, look tax is a very difficult area, first of all there is reasonably complex law, secondly we do affect people's hip pocket, and while tax is necessary for our society, then people do take different attitudes to it and we need to treat people according to that so it is a very complex field, it's a highly charged field, emotively and politically at times and I just have to expect that there will be those sorts of stories but I think overall if you look at the period of achievement and what's been achieved by the organisation it is a positive story.

Does it ever get you down though?

Not really, my wife tells me I've got a very thick skin, I think it gets her down more than me at times and she gets a little bit emotional about some of the attacks and comments at times, but look at the end of the day, my career has been as a tax administrator and we've been through turbulent times and periods of big change, to be frank I'd rather be involved in major change than seeing the wheels tick over.

I wonder about some of your staff though disillusioned by change by reform fatigue, how well do you think you're managing those people?

Well I think if you step back and look at what's been achieved, obviously that's achieved through people in this organisation and so the overwhelming story has to be that they're doing their job, that they're moving with the requirements of the new tax system and of our modern approaches to dealing with it. Now sure it has been a period of significant change and it's not unusual in any organisation that goes through that, that some people struggle with that. Now we need to work with those people, we provide a range of counselling and other services where necessary but some people haven't been able to make the change and we've been through a few programs of allowing people to leave with dignity if they aren't able to move forward with the changes.

You also seem to have a particular problem of stress. Why is that?

Well I'm not sure about the particular problem, if I look at our premiums with Comcare in respect of compensation issues, our premium is actually below the average in the APS and if you look at the number of claims, then stress issues are have been around the four or five percent, and you need to understand that claims can be made whether it's solely related to the work, they can be made if it's predominantly caused by personal and private issues so certainly we're alert to those and we have a number of programs but I wouldn't say that when you look across the public sector or across the community generally, where stress is increasingly an issue, that we're sort of, have an inordinate issue there.

But don't you have an inordinate issue with respect to people coming back, taking a lot longer to come back to work.

Yeah I think that we've worked closely with Comcare the government agency there and in fact we're working on a program now because while our overall premium is lower than the average, it is the case that what is affecting our premium is that the time period of people moving back to the workplace is longer than it should be and we've been working closely with Comcare now to look at what are the management and support practices that we can do to change that situation.

So what do you think is the cause, is it because the work is intrinsically difficult?

Well there's no doubt that tax is a difficult area to work in, but again if you look at the overall levels and the fact that stress claims can relate to issues that are predominantly outside the work environment, you know, again I wouldn't say there's an inordinate problem but it is one that we need to be alert to.

Can you treat the cause or just the symptom?

Well it's a matter of just sitting down with people and trying to work through what's causing the stress and if we're able to assist in that, in the workplace we can do that, we can also provide them with counselling if there are other issues involved. Stress is not peculiar to the tax office of course in today's society it's a more general issue for people and of course people react differently to the stressful environments.

I think you're aware that in the particular case that we're looking at there was evidence of poor performance, of people not really coming to work at all, coming to work and then heading for the pub, is there a tolerance of poor performance?

We've actively increased our performance management over recent years, and I'd just step back, that's a performance management in terms of reviews of people's performance, both by what they've achieved, how they've achieved it which is important, and also there is much more rigorous review of cases now and how cases are progressing and how they've been achieved and if you step back, look there are always going to be pockets of issues that need to be dealt with but again if you step back and see what the organisation has had to do and what it's achieved over the years, clearly overall performance is very good amongst people.

But not in this case, I mean you've got a bloke coming into work, heading off to the pub, day after day, month after month, I mean where's the supervision, how is that allowed?

Yeah well I think you're getting to a case that I really can't comment on and affected by investigations and so on so I can't go into individual cases but what I can say to you is that the notion that this is a general issue just doesn't stand up to what's achieved in the organisation and doesn't stand up against the performance management, case management systems that we now have in place in this organisation.

But there were other people who behaved similarly as I understand it, you don't see that there is a structural problem in terms of the management controls, that there is a loss of supervision by virtue of you having these business lines?

Oh well the whole issue of business lines, it's more about the fact that we have a national revenue systems and if we're to use our resources properly, then obviously we need to understand what's going on in the country, direct our resources to the issue, connect issues, make sure that we're dealing with themes and common issues, and you can't operate a national tax system by having isolated autonomous tax officers around the country. I think we need to be a little bit careful though, just because we have someone who will be responsible nationally for a total issue, and obviously that person can't be in every office at the same time, we do according to size and issues, there is local team leadership, management, regional management that goes through and on top of that over recent years, much closer performance reviews, performance management, case management, all of which is necessary to operate a national system which we have.

But is there an inevitable consequence of a loss of local supervision when your boss is in Canberra?

Well I guess people could say that I'm their boss and I happen to be in Canberra but I think as I've pointed out, you'll have team leaders in locations, you'll have regional management arrangements, you'll have national management arrangements complimenting it - now this is not an unusual structure in today's world, not only amongst the public sector but large private sector organisations and what you have to do is work out what's the best balance and in this case the balance from my perspective was that we have a national revenue system, we need to operate that nationally, we need to direct our resources on a risk basis nationally, that does require that we approach it from a national basis and we need to compensate at the local level as a result.

There's been a long-term argument I'm sure it's worn you out about the virtues of self assessment and the claims that self assessment is open to abuse, do you see in this issue the same vulnerability, viz a viz internal abuse?

Look again I'm a realist, we don't live in, you know a wonderful world where everything works magnificently, and that's why we have a range of controls, checks, indeed in the year 2000, the Australian National Audit Office looked at our internal fraud framework and complimented us on being better practice. Further compliments at our approaches from the Australian Federal Police so look we're a large organisation, we deal in a lot of money, we have to be realistic, and we have to put in place the controls and checks that are there and they've been reviewed by the National Audit Office and complimented on.

Can you say how you limit the knowledge of audit thresholds?

Well of course we have a wide range of checks for fraud, some of those are upfront detection for example high risk refunds identified by a range of parameters that we put into what's called a risk engine in business cases and audits tend to be more the post review, that is where we look at areas of risk. Now that's more sophisticated than just dollar limits or whatever, for example in the corporate area we almost do a financial economic analysis against tax performance to determine what are the issues, what are the groups and so on that we need to do. So there's actually, under self assessment, there's a comprehensive range of controls and checks and back up review, now some of those involve with the example for activity statements that are lodged monthly or quarterly we have checks of potential refunds being claimed under that and different companies and that will be risk rated, you know according to a range of factors including for example information about identity fraud. And then a range of limits will be applied and some of those will be checked but I guess the point I'm making is that's an upfront check, that needs to be balanced against the fact that people deserve and need their refunds and in business as it's a cashflow issue, so they're not the only check, but they're part of preliminary checks backed up by a range of others. Now as to the actual parameters and how they're applied at a particular time, well they have to be tightly controlled, and we do that.

It's inevitable isn't it that auditors will have to know what audit thresholds are, you can't keep that information secret within the organisation?

Oh well look I'm sure that people over time will seek to put together cases and that's a natural issue, but when it comes to our auditors, again of course we have very close performance management, case reviews, both as to outcomes that are being achieved and how they're going about it so you know you need to put the whole suite of issues and look as an organisation, we take these issues very seriously. They start with extensive fraud training and awareness training of people. A concern line that staff are concerned about potential fraud for example could ring, we have an integrity committee with external people on it, we have the former senior person from the Australian Public Service Commission working with us on integrity issues. Then you go through to the range of risk profiling, high credit claim risk profiling and checks, you go through a whole range of information matching, where we can identify from Centrelink or Immigration, you know cases where people are lodging claims when in fact they're not in the country, we might be able to match with the immigration or Centrelink with the using other people's identities and then you go through to access controls on our IT systems and audit trails to check whether people are using the systems they're entitled to or otherwise through to you know all our audit operations and we work, by the way, very closely with the Australian Crime Commission who have a brief on revenue fraud which again is another back up across the system so you know these are issues that we have to take very seriously and have a comprehensive suite of approaches in place.

I understand that a lot of this sensitive intelligence that was used and abused in this case allegedly came from the special audit unit, where were the controls?

Well I can't talk about that particular case but what I can point to is the fact that we identified this issue because of our checks and controls and we were able because of identifying a suspicious transactions, we were able to then link up with the then National Crime Authority, now Australian Crime Commission, who were coming at this from their brief from another perspective and undertake quite a comprehensive review so in the end event what on the face of it is allegedly a $2 million fraud was detected both by us and by the National Crime Authority as it was then and we worked very closely together to bring to the position to the case where people have now been charged.

I understand that your anti-fraud systems were brought to bear but not until after AUSTRAC had identified the problem, not the Australian Tax Office.

Well look there were two things happening and information about suspicious transactions was coming under examination by the then National Crime Authority but other other checks and controls meant that our, what was then called Tax File Number fraud area had also detected the area.

But that followed though didn't it?

No I think these were happening at the same time and in fact we then came together and undertook jointly what was a very comprehensive investigation of what turned out to be a complex but important issue for us.

What is your reaction to what has been exposed?

Well I think you know the possibility of a $2 million fraud is obviously disappointing to me, but I am a realist, I understand, and it's important that I understand that no organisation can be immune from attempts at fraud and that's why we have a full suite of controls and checks and work with other agencies to prevent and where necessary detect and investigate these issues and that's what happened in this case.

Have you contained the problem?

Well certainly we've looked at the particular technique employed in that and we've used a range of techniques including data mining simulating what was done in that area and of course that combined with a very extensive investigation, joint investigation with the National Crime Authority certainly give me confidence that we've identified and contained that issue. Again we have to be realists, we have to understand that an organisation of this size dealing with many billions of dollars that we there are going to be those who will seek to abuse the system and that's why we have the sort of controls and checks in place that we do.

Eight tax officers and ex-tax officers exposed allegedly involved in wrongdoing, eight in a narrowly focussed investigation of the Sydney office essentially, you've got 21,000 staff. I appreciate that the great majority would be honest hard working Australians but wouldn't you presume that there could be more than eight, perhaps many more than eight?

First of all I cant talk too much about the case but I don't believe it is the case that all people charge the tax office, it's far from it.

No, no, no...

And ah the issue here is yes there is an alleged $2 million fraud, now that's disappointing, but it is an issue that we need to guard against as an organisation, we have to be realistic, you know the world isn't the wonderful place that everyone would like it to be and indeed if I wasn't being realistic, then you might have a greater problem or issue to raise with me because we wouldn't have the checks and controls in place that we do. And so it's been recognised both by myself has been recognised by Senate Committees when they look at us that no organisation is immune but what we do have are very extensive controls to detect and deal with these issues.

You've spoken about the Senate Enquiry of 2000, you said in response that the ATO had implemented effective fraud control proceedings, but Mr Carmody these matters go back to 1995, I mean why weren't they picked up at that time?

Um well there the range of issues involved there and particularly the fact that we now have different forms of data matching that wasn't available to us then which has increased our capability in this area, but this was a $2 million fraud, or an alleged $2 million fraud I should say, I think I said at the time to the Senate Committee that we do have a comprehensive suite of controls but we do have to be realistic and understand there'll be those who attempt to abuse it and what's important is that we have those controls and that they do pick it up. Now.

They didn't pick it up, not in March 2000, the enquiry didn't begin until September 2000.

Yeah I think you need, I'm not sure which, you've lost me now in terms of which dates you're talking about but certainly.

Well I'm saying you had comprehensive fraud controls in March 2000 yet at that point those fraud controls did not pick up this alleged wrong doing.

But that particular point they did not but they did pick it up and that's the important issue.

But only after AUSTRAC picked it up.

Well AUSTRAC are actually part of the controls. Now in this case AUSTRAC was used by the then National Crime Authority, we also use AUSTRAC as part of our controls but independent of the National Crime Authority and the AUSTRAC information, our then tax file number fraud unit had identified the suspicious transactions and we'd started investigations. It's when we started those we linked in with the National Crime Authority as it was then to work cooperatively as evidence of how seriously we take these issues to investigate the matter that was an extensive investigation and people have now been charged.

Do you still hold to the view that the Sunday Program, the Channel Nine Program of '98 was unfair and inaccurate?

That's certainly my view and I think if you look at the conclusions of the Senate Committee, that's a view that would be shared.

But it did raise concerns that have been raised again about links to organised crime and abuse of self assessment, you said at the time that there was no credible evidence, are you sure that was so?

Yeah and there's been no credible evidence shown otherwise but what I did say at the time is that no organisation like mine could ever pretend that they were going to be immune from attempts to undertake criminal or fraudulent activity and indeed the committee in their conclusions said the same thing, that's the real world and what was acknowledged by the committee, what's been acknowledged by the Australian National Audit Office and the point that I've made is that we have a very extensive range of checks and controls and in later years as new matching techniques have become available to us, we've in fact extended those controls.

But the Australian National Audit Office hasn't marked you well to be fair has it over the years when it comes to your internal control?

Oh well if you look at the 2000 review of the Australian National Audit Office into internal fraud, controls checks balances approaches I think I'm sure you'll find that they refer to us as employing better practices amongst the organisations they've seen. They also refer to the fact that the Australian Federal Police compliment us on that. Now these sorts of controls that we need to implement continue to evolve. What we could do five years ago is very different to what we can do now because we do have new data matching facilities available to us and by introducing an integrity committee with the external representatives, I think including from the Federal Police, and the Australian Public Service Commission, we continue to develop and monitor those, and I think that's the important issue for the community, not that I can claim that there will never be attempted fraud on the tax office because that's unreal and dangerous to make that claim, what's important to the community is that they see us paying particular attention to continuing to develop and evolve our fraud controls and checks.

I'm just not so confident in my understanding of why you are so confident considering the Australian National Audit Office has raised concerns and Tom Sherman did the same about private binding rulings, what was your response to the Sherman report?

Well I think that's a good example of our approach to continuing to improve. There were allegations yet to be tested in the courts that a then officer was issuing favourable rulings to people in appropriate circumstances. Now when that became an issue, then what I did was to call in a former head of the National Crime Authority and say look we've actually had private sector firms go through and look at our our controls but I want you to have a good look at those and tell me what we can do better to do that and he came back.

He was very critical wasn't he?

He came back and said primary amongst his recommendations was that you should publish all your rulings so that and that's sort of the ultimate check, people can look up and say well this is in fact a ruling that's been authorised by the tax office. Now that's a fairly unusual step for tax administration and I guess in the past we've naturally been concerned about potential for identifying people, now we've worked through those issues and we accepted his recommendations. I think that's a perfect illustration of the fact that we are open organisation to improvement and when an issue is identified yet to be tested through the court but when it's identified, that we are open to getting in experts to help us and when they tell us something needs to be done we do it.

But only because it needs to be done, and this is after you've given assurances that that the measures are are under control?

Yeah and these will continue to develop and evolve and what we could achieve and what was appropriate as forward controls a number of years ago aren't any more and we will continue to improve and I think that's the really important issue for the community, that you have an organisation in the Tax Office, that's not standing still, that's not insular, that recognises there can be problems and gets people to help us with them.

You probably can't say anything but can you say anything at all about whether you have any regrets about the Petrulius episode?

Ah look that's a matter before the courts and clearly there's nothing that I can comment on that at the moment.

Mr Carmody do you think you are proactive enough when it comes to confronting corruption?

Absolutely, absolutely, we have an extensive suite of controls starting with bringing in people from outside the organisation to advise us through our integrity committee, we have an extensive fraud prevention and control operation in this organisation that investigates allegations of internal corruptions, we have extensive new tools in data matching and we have extensive upfront checks. It's an issue that we take very, very seriously.

Have you received warnings in the past about suspicious meetings between say criminal figures and members of your Sydney staff such as have now come to life?

Um well look this area of potential fraud and potential criminal activity, you know there are often allegations there's often innuendo and suspicion around and that will occur from now, time to time and what's important is that we thoroughly investigate those and that's what we do... We, you know we do live in the real world...

Yes but...

We live in a real world where we deal in many billions of dollars and to pretend that someone isn't going to try, be criminal elements or whatever, to try and get their hands illegally on on money, is a dangerous pretence and that's why we don't pretend that, that's why we acknowledge that this is a possibility and why we have such extensive controls and why we work with bodies like the Australian Federal Police and the Australian Crime Commission.

I just understand that there were warnings about these suspicious meetings that date back quite some time, can you say what action there was?

I cant obviously, you're talking about issues that are currently going before the courts and so I can't possibly comment on those, those issues will come out in the court proceedings, it's just inappropriate for me to do that.

Did you want to know about these things?

We obviously, as an organisation we are open and concerned to know of any potential threats to the integrity of this organisation and potential frauds and I think we've evidenced that by our openness to work with other bodies, by the extents of range of controls we've implemented and continued to implement, I am not going to stand here, sit here and say to anybody that there will never be attempts of fraud on or in the tax office or that there won't be other instances such as the alleged $2 million instance that's you're commenting on. That would be dangerous and unrealistic of me but what is important is that we demonstrate the sort of commitment to dealing with it that we have over the years.

Do you accept that there needs to be ongoing well resourced external oversight?

Absolutely. I take the view that it's critically important for an organisation such as my own which has a high community role to perform and that is given extensive powers to ensure that we can do that, that there is openness, that there is many levels of review and examination of our operations and we have that. We have the Australian National Audit Office consistently reviewing our approaches. We have the ombudsman's office doing that, we have parliamentary committees reviewing our operations and the audit reports. We have a government announce the appointment or proposed appointment of an inspector general. External accountability and review including me sitting here in front of you are all critically important to an organisation like my own and I think we've demonstrated that sure in an evolving world there are always going to be the ability of those bodies to say we can do better and what we've demonstrated is that we strive to do that and take that openly.

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